Annapolis Royal to go Bankrupt?

Here’s a municipal story of some interest– by an “investigative reporter” no less [we could use more of those!]- on Annapolis Royal’s budget woes over reassessment of property and a dispute with the province over NSPI status regarding property taxes. While the issue has a significant impact in Annapolis Royal the story is a cautionary tale for other municipalities used to rich tax diets. It highlights how tenuous assessment is as a basis for a budget [they shouldn’t be]. It points out how complicated governments can make the process of collecting and sharing out spending our tax dollars. It highlights NS Power Inc’s special status and it also highlights the issue of fairness or unfairness of “equalization”.

The town of Annapolis Royal finds itself at an unexpected and critical juncture. A recent reassessment of Nova Scotia Power Inc. (NSPI) properties will have broad-ranging effects across the province, but Annapolis Royal will be among the hardest hit. The half million or more dollars Annapolis Royal stands to lose will eliminate more than a quarter of next year’s budget ...

One has to think about other property reassessments -downward- all over the province [ like Railtown which rumour has it is near receivership!] which we have warned our Wolfville worthies were coming since we started this blog. Assessments (often inflated) are not income should not be relied on by a town as a cash cow. They should not be used to set budgets which should be based purely on what they need to provide services. [and don’t tell us they don’t because they do!] In Annapolis Royal’s case they will have a cash flow problem because of a radical reassessment of the tidal power plant.

Initial inquiries suggest that the previous value of the tidal power plant was in fact inflated, most probably because it included the value of machinery and equipment. For the general public, the obvious question is how can the value of a power station be calculated without including the value of, say, the turbines. The assessor’s answer is, the turbine is part of the station’s resale value, but not part of its taxable value.

So, now that the tidal power plant has been assessed according to proper standards Annapolis Royal will lose a lot of money under the current scheme

But the issue goes beyond just reassessment. Governments can make it complicated, so complicated it could put you to sleep.

Property tax rates are set by the municipality, and your property tax bill is calculated by applying this tax rate to the value of your property. In a few cases, like Aliant, the Nova Scotia Liquor Commision, or provincially-owned buildings, a lump sum is paid instead. This sum is referred to as a Grant in Lieu of Taxes or GILT. Like other property taxes, this GILT is paid to the municipality.

Except for in the case of NSPI. …

NSPI pays its property taxes to the provincial government, and therefore the provincial government retains control of how it is spent.

NSPI is a special case and the province has been sharing the money out to the municipalities in a way which some feel is unfair. To make a long story short the province has been using it to give “equalization payments” to “have not” municipalities.

A Service Nova Scotia spokesperson reports that the province spends about $32 million a year on equalization. So, do the math. More than half of the money used to fulfil a basic provincial duty (equalization) is being derived from a revenue stream (property tax) traditionally reserved for municipal government…. “NSPI is unique in that it is legislated to provide service to the whole province, regardless of profitability. Therefore NSPI pays a grant in lieu of taxes collected by the province,” according to a Service Nova Scotia representative, essentially explaining that NSPI’s situation is unique because its situation is unique. “When NSPI’s grant in lieu of taxes doubled in 2003, the province thought it was beneficial to all municipalities to look at the bigger financial picture and decided it would be most fair to all municipalities if the increase were spread out through equalization.”…

Now individuals in NS seem to think equalization is grand when NS, as a ” have not” province is on the recieving end but somehow when a municipality isn’t on the receiving end all of a sudden it doesn’t seem so fair and they cry foul.

“The province made this decision arbitrarily and the municipalities have never accepted it.” Simpson goes on to say, “NSPI is a major tax payer, and should pay property tax to host municipalities based on the local tax rate like everyone else.”

So now they know how Ontario and Alberta taxpayers have felt all those years.

Meanwhile poor Annapolis Royal. We don’t think the province will let it go bankrupt but you never know.